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Ivan Kaufman: Affordable Housing

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Ivan Kaufman gives insight on the Low Income Housing Tax Credit Program (LIHTC), including when it was founded, what it's main objective is, how it's administered, who is eligible to apply, and its reduction on taxes.

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Ivan Kaufman: Affordable Housing

  1. 1. Ivan Kaufman Affordable Housing June 2016 ARBOR.COM • 1.800.ARBOR.10
  2. 2. ARBOR.COM • 1.800.ARBOR.10 1 Low Income Housing Tax Credit Program (LIHTC) BACKGROUND • Founded via the Tax Reform Act of 1986 • Objective to Provide Investor Equity • Program Administered by Each State’s Housing Finance Agency • Eligibility is Based on Tenant’s Income • Credit is a Dollar-for-Dollar Tax Reduction Ivan Kaufman - Affordable Housing June 2016
  3. 3. ARBOR.COM • 1.800.ARBOR.10 2 LIHTC ADDITIONAL CONSIDERATIONS • LIHTC Projects have a 15-year compliance period with additional extended-use periods (investors typically exit after initial 15 years) • Recapture rules apply in the first 15 years • Rent and income restrictions are based on Area Median Income, which are reviewed annually and set by HUD • Total development costs funded by a combination of LIHTC equity, government grants, conventional financing, agency debt and/or tax exempt bonds Ivan Kaufman - Affordable Housing June 2016
  4. 4. ARBOR.COM • 1.800.ARBOR.10 3 How LIHTC Works • The proceeds from the sale of the tax credit is used as equity in the project • The equity reduces the amount of financing required allowing the rents to be lower than market • The investors return is based on the tax credits and passive tax losses generated by the project • Investor typically takes a 99.99% interest in the real estate owning partnership INVESTORS Ivan Kaufman - Affordable Housing June 2016
  5. 5. ARBOR.COM • 1.800.ARBOR.10 4 LIHTC by the Numbers • $100 Billion – Total LIHTC apartment financing • 90,000 to 95,000 – Apartment units built annually through LIHTC • 3 Million – Jobs created by LIHTC since program began • 96,000 – Jobs created annually by LIHTC Source: Novogradac Ivan Kaufman - Affordable Housing June 2016
  6. 6. ARBOR.COM • 1.800.ARBOR.10 5 Total Subsidized and Tax Credit Apartments Completed United States, Buildings With Five Units or More, New Construction Only 0% 5% 10% 15% 20% 25% 30% 0 20,000 40,000 60,000 80,000 100,000 120,000 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Subsidized and Tax Credit Apartments Completed (Units) Percent of Total Apartments Completed (%) Source: Arbor, U.S. Census Bureau Ivan Kaufman - Affordable Housing June 2016
  7. 7. ARBOR.COM • 1.800.ARBOR.10 6 Source: Arbor, Alliant LITEC 9% Application Submissions 1998-2015 0 60 120 180 240 300 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9% Applicants 9% Awards Ivan Kaufman - Affordable Housing June 2016
  8. 8. ARBOR.COM • 1.800.ARBOR.10 7 Low-Income Housing Tax Credit Program • The State Housing Finance Agencies are required to develop Qualified Allocation Plans (“QAP”). The Agencies award 9% credits to projects best meeting the goals of the QAP • Competition for the credit is fierce, with a 3:1 Ratio • 9% credits designed to finance 70% of total costs; 4% credits designed to finance 30% of total costs STATE ALLOCATING AGENCY Ivan Kaufman - Affordable Housing June 2016
  9. 9. ARBOR.COM • 1.800.ARBOR.10 8 9% Credits vs. 4% Credits 9% OVERVIEW • 9% credits are limited to competitive applications and total availability is subject to annual volume caps • 9% credits are paired with conventional or agency (Freddie/Fannie/FHA) debt • 9% credits designed to finance 70% of costs 4% OVERVIEW • 4% credits are available to rent restricted developments where more than 50% of the project costs are financed by tax- exempt bonds • 4% credits designed to finance 30% of total costs Ivan Kaufman - Affordable Housing June 2016
  10. 10. ARBOR.COM • 1.800.ARBOR.10 9 Low-Income Housing Tax Credit Program Competitive Credits: 9% credits are awarded annually by the IRS (based on $2.35 per capita) to the State Allocation Agency Non-Competitive Credits: 4% credits are awarded when more than 50% of a project’s costs are financed by private activity bonds STATE ALLOCATING AGENCY US TREASURY IRS Ivan Kaufman - Affordable Housing June 2016
  11. 11. ARBOR.COM • 1.800.ARBOR.10 About Us Founded by Chairman and CEO Ivan Kaufman, Arbor, LLC and Arbor Commercial Funding, LLC are national direct lenders specializing in loan origination and servicing for multifamily, seniors housing, healthcare and other diverse commercial real estate assets. Arbor is a 2013 Top 10 Fannie Mae DUS® Multifamily Lender by volume, a Freddie Mac Program Plus® Seller/Servicer and Small Balance Loan lender, an FHA Multifamily Accelerated Processing (MAP)/LEAN Lender, a HUD- approved LIHTC Lender as well as a CMBS, Bridge and Mezzanine lender, consistently building on its reputation for service, quality and flexibility. With a current servicing portfolio of more than $11 billion, Arbor is a primary commercial loan servicer and special servicer rated by Standard & Poor’s and holds an Above Average rating from Standard & Poor’s. Arbor is also on the Standard & Poor’s Select Servicer List and is a primary commercial loan servicer and loan level special servicer rated by Fitch Ratings. Arbor, LLC also manages Arbor Realty Trust, a real estate investment trust, (REIT), formed to invest in mortgage-related securities, real estate-related bridge, junior participating interests in first mortgages, mezzanine loans, preferred and direct equity investments and in limited cases, discounted mortgage notes and other real estate related assets. Arbor is headquartered in Uniondale, NY, with full-service lending offices throughout the United States. For more information about Arbor, visit www.arbor.com. The research contained in this report should not be construed as a solicitation to and/or trade. All opinions, news, research, analyses, prices or other information is provided as general market commentary and not as investment advice; all information is subject to change. Arbor, its members, shareholders, employees, agents and representatives do not warrant the completeness, accuracy or timeliness of the information supplied, and shall not be liable for any loss or damages, consequential or otherwise, which may arise from the use or reliance on the content contained herein. Past performance is not indicative of future performance.

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